EPF Tax must go!

They say that art depicts realities of life. It must be true. A simple perusal of popular cinema over the last 50 years would indicate how much our sensibilities have changed. A ‘Mother India’ was expected not only to disown her wayward son, but even kill him, if honour demanded so. Our movies have since evolved and it is not uncommon to see parents defending the indefensible any longer, e.g., the father defending thefts committed by his daughter in ‘Hansi to Fansi’

While there will be valid arguments made that art not merely depicts but also influences life, it will be difficult to dispute the perception that overall, Indians have been more individualistic, more materialistic, more self-confident and more accepting of shortcomings of who they identify as their own.

A parent defending crimes of his/her child does not seem very outlandish when we see individuals vehemently defending their favorite leaders and political parties for those acts which hardly have any justification, leave alone merit. And to this end, no false logic is weak enough, no argument not contrived enough, no verbal contortions not painful enough to argue even when there is no argument. Cases in points could be the infamous ‘zero-loss’ scams of UPA 2, AAP’s support for Khalistanis or the many many U-turns of the Modi Sarkar.

Modi Sarkar’s recent move of taxing EPF on withdrawal drew similar reactions. While most of hardcore Modi supporters did seem benumbed by this blow on the day it was announced, it did not take long for them to rally in support of this ill-conceived and ill-intended move.

Arguments forwarded by Modi-Bhakts or rather Mo-ley (Modi-Jaitely) Bhakts range from the hilarious to the ridiculous. While some stubbornly cling to the statement of Hasmukh Adhia (overruled the same day by the MoS Finance and Jaitely), that only interest on EPF would be taxed (just why), some have invented quite outlandish arguments around how Indians want to pay no taxes, or how the middle class can afford to pay this tax or even how people have no business to get ‘high’ interest on EPF at all.

One tweet on my timeline did catch attention for what I thought was an outrageous comment. One worthy claimed that ‘basically ppl dont want 2 invest in equity mrkts coz thy r getting 8% w/o any sweat..y shud govt pay 8% at al’

The tweeter then found place on SwarajyaMag and he parroted his line on how Indians have been spoilt by ‘high’ interest rates and that the EPF tax would force them to take responsibility for their own retirement!

Had the reader not been an average salary earning, tax paying individual, he would have been excused for believing (basis the article and of course, the pronouncements of our Honorable Ministers of Finance) that till now, it is the Indian Government which has been taking ‘care’ of all its retired citizens.

To say that the way Government has tied itself in knots trying to defend, rationalize and explain its decision to tax EPF was ridiculous, will be an understatement. From announcing that Tax is on entire corpus, then clarifying that it is on interest, then further clarifying that it is on entire corpus, then re-clarifying that it does not apply to people below a certain threshold salary, then claiming that it is meant to prevent ‘conspicuous consumption’, that it will impact a very small segment of society, and in the same breath claiming that it will help the entire population come under pension, no possible excuse / variant was left untouched, that too, all in 1 day!

Following is my critique to the various arguments in favour of taxing EPF

1.     Touching only 60-70 lakhs people –

a.     By Govt’s own figures, only 3.5 Crore people pay direct taxes, a bulk of them in the lowest tax slab. On the other hand, people in the 1 Crore plus bracket are only 42,800/-. It simply means that the very same population which contributes most significantly to Individual Income Tax is getting further squeezed

b.     What is more disputable is the Government’s claim that 3 crores employees earn less than 15,000/- per month and would not be impacted by the taxation. This argument is with serious flaws. Just how is this figure of Rs 15,000/- determined? Would it mean an employee who starts at Rs 15,000/- per month or if he draws Rs 15,000/- at any time in his life? Since increments, if nothing else, on account of inflation, are bound to happen, just how many employees would continue to be ‘unaffected’ by the tax?

Once increments happen, how would tax treatment be done? On the entire corpus? Or on the post increase salary? What of the cases where the person’s salary reduces (working only part time on account of some reason or simply because of a worse paying job). There may be times when a person is not working. Would zero contribution of that period be used to average out the calculations?

In the year of withdrawal, (at current levels) the proceeds would almost always be in the highest tax slab. Just how will it not be taxed?

2.     People who are impacted do not ‘deserve’ EPF and can pay the tax – If we would not be wrong in assuming that the Government encourages people to move up in their life, it would not be disputed that other than having basic food grains and just about enough to cover one’s self, an average human being wants to have education, a house, a better quality of life for his/her progeny. All this costs money. The more the Government takes, the less an individual would have to spend. If capacity to pay is the question, of course, anything more than what is absolutely critical to survival (or not even that) ‘can’ be paid to the Government. An even more basic question is just how is ‘capacity’ defined? As per our Governments, people earning even Rs 32/47 a day are above poverty line. No wonder it believes that people earning, say Rs 1000 per day are rich and can afford to pay tax on, or even the entire amount which keeps them ‘above’ the Govt defined poverty levels.

3.    Indians do not like to pay taxes – Mr Jayant Sinha, just which citizenry ‘likes’ to pay taxes? Even in your promised land, the US, lowering/rationalization of taxes is a carrot US politicians promise to the electorate (not unlike the promises your party had made before winning power), so just what makes Indian reluctance to pay tax so peculiar? Still, most of the salaried classes pay taxes regularly and you people, rather than making the untaxed sections come under tax bracket, take the easiest way out of hounding, squeezing and crushing a hapless, scattered minority, people who are neither a vote bank, nor capable of coming on streets and holding violent protests!

·          Indirect taxes are borne and paid for by every Indian, even the poorest of the poor.

·         As per Census 2011, 62.5% of our population is in productive age group of 15-59. In absence of a clear data point, let us assume that people in age-groups 15-22, 23-30, 31-37, 38-44, 45-52 and 52-59, all are equally distributed in their total share of 62.5%. That would mean each group having (62.5/7 = 8.9%) share in the total population. Given the low rate of people becoming full time earning members before 21-22, the productive (potential tax paying age-group) falls down to 53.6%. In 2012, the GoI claimed that 21.9% of its population is below the official poverty line. That means this proportion of people can be removed from the potential tax-payer bracket, i.e., (53.6 x 21.9% = 11.7%) That leaves us with potential tax payer bracket of 41.9%. Of our female workforce, barely 10% would be in adequate income earning roles, further reducing the potential tax paying workforce to (41.9% - (41.9 x 0.45) = 23%) of the population. Removing 3% for residents of States which don’t have Income Tax (e.g. J&K), and people whose earning capacity is limited on account of any disability, we are left with barely 20% of population as having capacity to pay tax. Of this, we must remember (inspite of the Government) that people just above or even much above the so-called poverty line will hardly have any taxable income). In addition, the Government exclude farmers and have virtually no control over the trader, professionals, and artisans. So, if finally only 2.9% pay taxes, just what is the surprise?

Government’s act of taxing these people more is simply a punishment to those people for being tax payers in the first place.

Now the more ridiculous claims

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4.     Developing a pensioned society – Mr Jaitley claimed that the population impacted would be low and in the same breath he claimed that this will make India a pensioned society! Readers are advised to use their own intellect to decipher which of these claims may be true as both simply cannot be true together!

Even assuming that the Govt. wants Indians to invest in pension funds, the thing to do is to make pension funds attractive, not by forcing people against their will, by taking away their nest eggs. Contribution to PF is in any case mandatory. Just how can the Government further force tax on it? For many people, tax on corpus would be double taxation as given the provisions of section 80C, the forced investment in PF does not earn them any deduction.  

The sinister truth behind this move could be Government’s intent to force people to invest in Equity. Last year, the Finance Ministry forced the browbeaten EPF Board to invest partially in the stock market. With the current move of ‘not taxing’ proceeds if they are investment in annuity, the Government is forcing people to invest in a volatile market, where rather than any consistent logic, ‘sentiments’ and power-players rule the roost. Given that the Government has no role in supporting the middle class for food, medicines and shelter if they fall on bad times, the middle classes are naturally averse to betting their money in schemes/instruments which they don’t understand. And even if the stock market were heaven, just what business would the Government have to force people into it?

Annuities are in any case, a sub-optimal investment decision in many ways. Improve them. If they are good, people will automatically invest in them.

5.    Discourage conspicuous consumption – Come on Mr Jaitley. Are we back in the Indira Gandhi regime? Is withdrawing from PF for children, for house, or for any other requirement ‘conspicuous consumption’? And even if it were, just how is it Government’s concern to control it? As tweeted by Anand Rananathan on Twitter, such words sound even more outlandish coming from an extremely successful lawyer with declared assets of over a 100 Crores and a fleet of luxury cars with signature number plates! Even leaving that apart, just when did the philosophy of this control take rebirth?

Before General Elections 2014, the BJP promised tax reforms, even promising to assess if Income Tax could be eliminated. In 2014 budget, the Finance Minister claimed to be in deep sorrow on account of his inability to raise Income Tax Slabs (as was promised) and rationalize exemptions (as per inflation). Quite a turn in 2 years that forget those promises, the intent now is mercenary. What makes the Government’s move to crush middle class tax-payers even more loathsome is its amnesty scheme to legalise 'Black Money', for a penalty of mere 15%. Quite a benefit to those who do not pay taxes as the penalty otherwise for concealment of income could be upto 300% plus interest.

Some of us might remember that when service tax was introduced, it was a mere 5%, and that too on very limited number of services. Today, the rate (with cess) is at 15% and we are at the cusp of a negative list. Though the GST support brigade may not realise it, once the GST passes, the service tax rate is likely to be at least 18%, if not more.

Likewise, silently accepting the taxation of 60% of corpus, or even the interest component, or even after exclusion of those earning below 15,000 per month is not acceptable at all. Nothing prevents Governments from using a small opening to progressively increase and consume whatever is left. The tax rate may be 30% today. It could be anything later.

Just why has Modi Government undertaken this move?

It is well understood that the so-called-outsider is bending over backwards for integration in the Lutyens elite as ‘one of our own’. It is even more understood that BJP Governments would do anything to appease those who despise its very existence. It is taken as a fact of everyday life that the BJP has little use for its supporters after they have voted for it. Still, it is mind-boggling that the BJP can display so much contempt for its supporters, be it Hindutva, Land Bill, Ecology, Black Money, Corruption, Reforms, Taxation, etc? Have we become the new Muslims that come whatever may, we will only vote for the BJP?

Bihar defeat is Modi's defeat

Had drafted this note in longhand on the 9th of November. Lethargy had stopped me from posting it for 8 weeks. Though dated, still posting it so that it at least appears in the timeline of 2015.

Claiming ‘I-told-you-so’ post occurance of an event carries high credibility risks, particularly when there is like evidence of one actually having said so. For this reason and this alone, and even after discounting the lusty cheerleading going on till around 11 AM on October 8, words of many pundits, who now claim to have had foretold BJP’s debacle, are flummoxing.

Did not the Modi brigade claim an overwhelming mandate for development all along? Did it not claim that Modi’s INR 1,75,000 Crores package was a deal-sealer, that Modi’s personal appeal was transcending caste/class barriers and that people are voting for Modi in droves or that Modi’s attack on possibility of reservations for minorities had stymied the desertions of backward classes and had re-rallied support for the BJP?

Just what did happen in a mere hour that the cheerleading got replaced with a list of sage reasons, ranging from the lazy intellect of Biharis to weird conspiracy theories. All sort of reasons but scarcely any blame getting attributed to the Modi-Shah duo or any the BJP’s lackluster governance. It was quite striking when you consider that only an hour earlier, paeans were being sung to them for their vision, sagacity and efforts. Now, if credit was to be given for good show, how can the same people not be blamed for a bad show? Just how different from Congress is this ‘party with a difference’. There too, all victories are by the ‘Grace of Gandhis’ and all defeats ‘collective responsibility’?

This intermittent blogger, to all those who had cared to ask, had all along maintained that there was no way the BJP would win in Bihar, and that too for the most simple and obvious of reasons.

Modi triumphed in 2014, buoyed by a ‘wave’. Then, the general public voted for an icon, an idea that would deliver them from the hopelessness all around and guide them to a better future. Seventeen months in power is a long enough time for people to form impressions whether their hopes are being fulfilled. If they are not, people may still cling on hope, but definitely will not rally around the hope-giver like they had done previously. And even otherwise, Modi wave was a catharsis of frustrations, blood and tears of many. Our most successful politician ever, Mohandas Karamchand Gandhi knew that public emotions cannot be aroused again and again. Hence, he kept a lag of a decade in between each of his major mass movements, from the non-cooperation to the Civil disobedience to Quit India.

Can we rationally expect people to come out and vote in droves for a messiah who may be false? Can people really be expected to vote for someone who seems disconnected with the masses, disowns electoral promises, talks haughtily and most critically, under whose rule, the humble onion, dal and mustard oil became food for the not-so-humble?

To all those who claim that the outcome of even 2014 would have been different had Nitish-Lalu allied in those elections, I beg to differ. History shows that individual vote shares of 2 parties do not translate into an absolute total when win alliance. Most candidates being their own loyal votes too, the core vote of the party could be lesser than the increments provided by the candidates. A case in point would be Maharashtra where the combined vote shares of NCP-Congress when they had contested separately was over 50%. If elections were sum of core vote shares, there would not have been any point in strategising, in conducting strenous campaigns. Outsiders like AAP would never have made an impact anywhere. So the claim that the BJP was at a huge disadvantage needs to be dismissed. To say that backward castes polarised is disingneious. Major chunks of even Brahmins and Rajputs have voted for Mahagathbandhan. Moreovr, polarization carries an inherent risk of counter-polarisation. Given the Modi wave in 2014, there is little to suspect that even a Nitish-Lalu combine could have worsted NDA in Bihar.

Many Modi apologists keep on claiming that 17 months is too small a period to undo 60 years of mess.

Was India really a complete mess in these last 60 years? No, it wasn’t! And does it really take 5 years to make a difference to the lives of people? Again, no – it doesn’t!

A case in point – only a few months in the NDA’s first regime in Bihar, there was a perceptible improvement in law and order. The first few months of UPA saw such momentous (some may say disasterous) actions in terms of NREGA, RTI and so on. Each spell of Mayawati’s rule in UP invariably sees an improvement in general administration. Modi’s own 1^st stint in Gujarat saw a dramatic improvement in the relief and rehabilitation measures being taken for the earthquake survivors. Kayan Singh’s 17 month old Government, even when pre-occupied with the Ram temple liberation movement, gave the best governance UP had had in years.

Just how long is incrementalism or planted stories on Modi’s work ethics going to sway the gullible masses? If we believe that Modi’s promises led people to vote for him, how can we reject the hypothesis that his u-turns on those promises disillusioned at least some of his voters, who if not voting for his opponents, did not vote for him this time? That if people rallied to vote for him driven by his promise to get black money stashed abroad back to India, would at least some of them, not reacted with disgust when the party president called those promises mere jumla?

In isolation, neither Modi’s taste for rich dressing, his insipid governance, his u-turns would have been strong enough to prompt people not to vote for the BJP. But together, they certainly take away the sheen off the self-proclaimed deliverer and show him to be just another politician, a glib talker, a jumla master, an alliterating demagogue, but at the end of the day, just another self-serving politician, in service to the suited-booted of the world.

Now, if the voter had to choose between just another politician and his own caste brethren, why would he overlook his caste loyalties? On the other hand, if he had felt that the great leader was actually working to change his (the voter’s) life for the better, he would have cared little for caste or the contrived controversy over Mohan Bhagwat’s comments (which I maintain, going against conventional wisdom, was factual and had nothing objectionable in it)

On governance, just how credible an attack on Nitish for his mis-governance when the BJP was very much a part of his government for 8 years? Personally, I had relied on the average Bihari’s appreciation of Nitish’s efforts in delivering them from jungle raj to bless him with their votes. They did. I dare say that Nitish could have fought alone and still managed a comfortable number of seats to gain support from Congress and RJD to form a government with less dependence on Lalu for survival.

Ever since the impact of Nitish’s governance had been manifest on ground, the NDA had hardly lost any election in Bihar, be it the general elections or bypolls. Hence, to claim that the Bihari does not reward good governance is plain lazy blame-shifting,

Finally, the Lalu factor. The media loves to write off people. It loves to deify people. Then it loves to write them off again only to deify at a later date. It is simply because extreme tales grab eyeballs much more than plaid staid facts. Even in the worst of times, Lalu commanded some 20% vote share in Bihar. Any commander of 1 in 5 voters in the state is a formidable force, particularly in the 1^st-past-the-post electoral system of India. That the RJD came back from the dead is a story only for those who confuse sensationalism with news. RJD was never dead. It simply prospered again in the right conditions.

If anything, the story of RJD’s rejuvenation should provide a jolt to those Modi-worshippers who had actually started believing in fanciful tales of a Congress-mukt Bharat.

In its worst ever performance, the Congress has managed to win over 18% of votes. A few right alliances, a few more failures of Modi, a little more of people shedding their hopes and it won’t be long before the Congress, aided by dispirited Modi supporters staying at home, wins a vote share of 23%-25%, sufficient enough for them to form Government once again.

Some optimistic right-wingers believe that Modi/BJP will learn their lessons from this defeat. Lessons they will surely learn, but all the wrong ones!

Rather than focusing on making people’s lives better, the trio of Modi-Shah-Jaitely is likely to focus on keeping the ‘fringe’ in control. That the BJP’s performance post ‘cow-polarisation’ in Seemanchal was comparatively much better than in rest of Bihar would be lost.

We know what happened in 2004. Then, the arch-secular BJP was routed and it took 10 years of UPA misrule for it to make a comeback. Let’s make no mistakes; Modi would not have become the phenomenon that he became had the UPA under Rahul Gandhi not been his alternate.

Today, if elections are conducted, inspite of all the disillusionment, Modi may still emerge as the leader of choice, though by a much reduced majority. The same Bihar which has voted for Nitish-Lalu now may still vote for Modi as PM. All this for 2 reasons. There are still vestiges of hope. People do not want to lose hope till they can. And even more importantly, there is no credible alternative to Modi on the horizon right now.

Yet, it will take only a few more mis-steps and a sustained campaign by a re-branded Rahul or a Priyanka or even a Nitish, to ensure that Modi and the BJP get confined to history in 2019. The diiference with 2004 would be that this time, the exile would be much longer. While Modi could not deliver a Congresss-mukt Bharat, the next rulers would definitely ensure a BJP-RSS mukt Bharat in their rule.